L1 flash cards ethics (ss1)

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L1 flash cards ethics (ss1)

  1. 1. What is the CFA InstituteProfessional Conduct Program? All CFA Members and Candidates are required to comply withthe Code of Ethics and Standards of Professional Conduct (the“Code” and “Standards”). The CFA Institute maintains responsibility for the ProfessionalConduct Program.Study Session 1, Reading 1
  2. 2. Enforcement of the CFA InstituteProfessional Conduct Program The Disciplinary Review Committee of the CFA Institute Boardof Governors has overall responsibility for the ProfessionalConduct Program and enforcement of the Code andStandards.Study Session 1, Reading 1
  3. 3. Enforcement of the CFA InstituteProfessional Conduct ProgramThe Rules of Procedure for Proceedings Related to ProfessionalConduct are based on 2 principles:1) fair process to the member and candidate2) confidentiality of proceedingsStudy Session 1, Reading 1
  4. 4. Initiation of Inquiry Enquires may arise because of:1) members must self disclose on the annual Professional ConductStatement all matters that question their professional conduct2) written complaints about a member3) CFA Institute staff may become aware of questionable conductthrough the media or other sources.Study Session 1, Reading 1
  5. 5. After Initiation of Inquiry The CFA Institute may:1) request a written statement from the member/candidate2) interview the member/candidate, complaining parties, or 3rdparties3) collect documents supporting evidenceStudy Session 1, Reading 1
  6. 6. After Collecting Evidence After collecting evidence, the Designated Officer may1) conclude the enquiry with no disciplinary sanction2) continue proceedings to discipline themember/candidateStudy Session 1, Reading 1
  7. 7. Disciplinary Sanctions Sanctions imposed by CFA Institute for a breach mayinclude: Members: public censure, suspension ofmembership/designation, or revocation of CFA charter. Candidates: suspended from further participation in theprogram.Study Session 1, Reading 1
  8. 8. Code of Ethics The Code is a set of principles that define theprofessional conduct that CFA Institute expects fromits members and candidates in the CFA Program.Study Session 1, Reading 1
  9. 9. Six Mandatory Principles in theCode of Ethics1. All members must act with integrity, competence,diligence, respect, and in an ethical manner with thepublic, clients, prospective clients, employers,employees, colleagues in the investment profession,and other participants in global capital markets.Study Session 1, Reading 1
  10. 10. Six Mandatory Principles in theCode of Ethics2. All members must place the integrity of theinvestment profession and the interests of clientsabove their own personal interests.Study Session 1, Reading 1
  11. 11. Six Mandatory Principles in theCode of Ethics3. All members must use reasonable care and exerciseindependent professional judgment whenconducting investment analysis, making investmentrecommendations, taking investment actions, andengaging in other professional activities.Study Session 1, Reading 1
  12. 12. Six Mandatory Principles in theCode of Ethics4. All members must practice and encourage others to practicein a professional and ethical manner that will reflect crediton themselves and the profession.5. All members must promote the integrity of and uphold therules governing capital markets.Study Session 1, Reading 1
  13. 13. Six Mandatory Principles in theCode of Ethics4. All members must practice and encourage others to practicein a professional and ethical manner that will reflect crediton themselves and the profession.5. All members must promote the integrity of and uphold therules governing capital markets.Study Session 1, Reading 1
  14. 14. Six Mandatory Principles in theCode of Ethics6. All members must maintain and improve their professionalcompetence and strive to maintain and improve thecompetence of other investment professionals.Study Session 1, Reading 1
  15. 15. Standards of Professional Conduct The standards of professional conduct outline fair and ethicalbusiness practices. While Code defines the conduct, Standards outline it in moredetails Violations may result in disciplinary sanctionsStudy Session 1, Reading 1
  16. 16. Seven Standards ofProfessional Conduct1. ProfessionalismA. Knowledge of the LawB. Independence and ObjectivityC. MisrepresentationD. MisconductStudy Session 1, Reading 1
  17. 17. Seven Standards ofProfessional Conduct2. Integrity of capital marketsA. Material non public informationB. Market manipulationStudy Session 1, Reading 1
  18. 18. Seven Standards ofProfessional Conduct3. Duties to clientsA. Loyalty, prudence and careB. Fair dealingC. SuitabilityD. Performance presentationE. Preservation of confidentialityStudy Session 1, Reading 1
  19. 19. Seven Standards ofProfessional Conduct4. Duties to employersA. LoyaltyB. Additional compensation arrangementsC. Responsibility of supervisorsStudy Session 1, Reading 1
  20. 20. Seven Standards ofProfessional Conduct5. Investment analysis, recommendations and actionsA. Diligence and reasonable basisB. Communication with clients and prospective clientsC. Record RetentionStudy Session 1, Reading 1
  21. 21. Seven Standards ofProfessional Conduct6. Conflicts of InterestA. Disclosure of conflictsB. Priority of transactionsC. Referral feesStudy Session 1, Reading 1
  22. 22. Seven Standards ofProfessional Conduct7. Responsibilities of a CFA institute member or CFAcandidateA. Conduct as members and candidates in the CFA programB. Reference to the CFA institute, the CFA designation and theCFA programStudy Session 1, Reading 1
  23. 23. Ethics and CFA Institute Through adherence to the codes and standards, each memberdoes his part in maintaining the integrity of the profession The code outlines the high level of ethical conduct expectedfrom candidates The standards are interwoven with the code forming atapestry of ethical requirementsStudy Session 1, Reading 1
  24. 24. Conduct that Conforms andViolates StandardsStandard 1 Professionalism (A. Knowledge of the Law) When applicable law and the Code and Standards contradict,members and candidates must follow the stricter of theapplicable law or the Code and Standards.Study Session 1, Reading 2
  25. 25. Conduct that Conforms andViolates StandardsStandard 1 Professionalism (A. Knowledge of the Law)Ex. Applicable law may not require disclosure of referral fees forthe recommendation of investment products or services.Because the Code and Standards impose this obligation,however, members and candidates must disclose the existenceof such fees.Study Session 1, Reading 2
  26. 26. Conduct that Conforms andViolates StandardsStandard 1 Professionalism (A. Knowledge of the Law) A member or candidate must dissociate, or separate, from anyform of unethical or illegal activityStudy Session 1, Reading 2
  27. 27. Conduct that Conforms andViolates StandardsStandard 1 Professionalism (B. Independence and Objectivity) Gifts should not be accepted if it leads to a conflict of interest. Participating in IPOs or private ownership/participation ofcompanies that the analyst himself is covering is unacceptable.Study Session 1, Reading 2
  28. 28. Conduct that Conforms andViolates StandardsStandard 1 Professionalism (C. Misrepresentation) A misrepresentation is any untrue statement or omission of afact or any statement that is otherwise false or misleading.Ex. Omitting negative scenarios from financial models/Orallyexaggerating your expertise or capabilitiesStudy Session 1, Reading 2
  29. 29. Conduct that Conforms andViolates StandardsStandard 1 Professionalism (C. Misrepresentation) Misrepresentation through plagiarism in investmentmanagement can take various forms.Ex. Taking a research report/study of another firm or person,change the names, and release the material as ones ownoriginal analysisStudy Session 1, Reading 2
  30. 30. Conduct that Conforms andViolates StandardsStandard 1 Professionalism (D. Misconduct) Otherwise legal actions are often construed as misconduct.Example.Excessive alcohol consumption during business hours – itcould have a detrimental effect on the members/candidatesability to fulfil his or her professional responsibilitiesStudy Session 1, Reading 2
  31. 31. Conduct that Conforms andViolates StandardsStandard 2 Integrity of Capital Markets(A. Material Non Public Information) Material information can have a bearing on the stock prices.For information to be material it has to be from a reliablesource. Analysts must be wary of receiving information fromcorporate insiders.Study Session 1, Reading 2
  32. 32. Conduct that Conforms andViolates StandardsStandard 2 Integrity of Capital Markets(A. Material Non Public Information) Information given to a select group of analysts is not publicinformation and acting upon such information is a violation ofthe standard.Study Session 1, Reading 2
  33. 33. Conduct that Conforms andViolates StandardsStandard 2 Integrity of Capital Markets(B. Market Manipulation)1) dissemination of false or misleading information2) transactions that deceive or would be likely to misleadmar-ket participants by distorting the price-settingmechanism of financial instru-ments.Study Session 1, Reading 2
  34. 34. Conduct that Conforms andViolates StandardsStandard 3 Duties to Clients (A. Loyalty, Prudence and Care) Duties to client exist beyond managing assets. The brokeragecommissions or soft dollars are the assets of the client andmust be used for their benefit. Proxy voting is an economic benefit of the client. Votingirresponsibly violates the duties towards the clients.Study Session 1, Reading 2
  35. 35. Conduct that Conforms andViolates StandardsStandard 3 Duties to Clients (A. Loyalty, Prudence and Care) Violation: Excessive trading (which benefits brokers) within aportfolio of client securities, even if the securities themselvesare appropriately bought and sold.Study Session 1, Reading 2
  36. 36. Conduct that Conforms andViolates StandardsStandard 3 Duties to Clients (B. Fair Dealing) Members/candidates should treat all clients fairly in light oftheir investment objectives and circumstances.Example. When making investments in new offerings or insecondary financings, members and candidates shoulddistribute the issues to all customers for whom theinvestments are appropriate.Study Session 1, Reading 2
  37. 37. Conduct that Conforms andViolates StandardsStandard 3 Duties to Clients (B. Fair Dealing) Members and candidates should not take advantage of theirposition in the industry to the detriment of clients. For instance, in the context of IPOs, members and candidatesmust make bona fide public distributions of "hot issue"securities.Study Session 1, Reading 2
  38. 38. Conduct that Conforms andViolates StandardsStandard 3 Duties to Clients (C. Suitability) While deciding the suitability of a security for a client, theoverall affect of the transaction of the risk return profile of theportfolio should be considered. Violation: Evaluating a security in isolation/Recommending asingle transaction for all the clientsStudy Session 1, Reading 2
  39. 39. Conduct that Conforms andViolates StandardsStandard 3 Duties to Clients (D. Performance Presentation): Violation: Not including terminated accounts as part ofperformance history with a clear indication of when theaccounts were terminated Past performance can be highlighted for marketing but mustbe clearly mentioned that the performance was achieved atanother fund.Study Session 1, Reading 2
  40. 40. Conduct that Conforms andViolates StandardsStandard 3 Duties to Clients (E. Preservation of Confidentiality): Confidentiality must be preserved, even if the person is nolonger a client. However client confidentiality does not mean that potentiallyillegal activities are not to be revealed to the respectiveauthorities.Study Session 1, Reading 2
  41. 41. Conduct that Conforms andViolates StandardsStandard 4 Duties to Employers (A. Loyalty): Violation: rendering independent services until they receive consent fromtheir employer to all of the terms of the arrangement Keeping a record of client details and intellectual property ofprevious employer, once they have decided to leave thecompany, unless with consent from the previous employerStudy Session 1, Reading 2
  42. 42. Conduct that Conforms andViolates StandardsStandard 4 Duties to Employers (A. Loyalty): Violation: Taking work done for the previous employer to thenew employer, even if the member has worked on it entirelyon his own.Example. A member cannot give software developed for GIPScompliance for a previous employer to the new employer whois seeking GIPS compliance, even though candidate has donethe entire work to develop the software.Study Session 1, Reading 2
  43. 43. Conduct that Conforms andViolates StandardsStandard 4 Duties to Employers(B. Additional Compensation Arrangement): Candidate must obtain the consent of his employer to accept asupplemental benefit. Supplemental benefit can be a vacationtrip paid by the client for good performance. Not disclosingsuch arrangement would be a violation of the standard.Study Session 1, Reading 2
  44. 44. Conduct that Conforms andViolates StandardsStandard 4 Duties to Employers(C. Responsibilities of Supervisors): A member or candidate must adopt reasonable proceduresand taken steps to implement an effective complianceprogram Violation: Knowledge that the procedures designed to detectand prevent violations are not being followedStudy Session 1, Reading 2
  45. 45. Conduct that Conforms andViolates StandardsStandard 5 Investment Analysis, Recommendations and Actions(A. Diligence and Reasonable Basis) Violation: Drawing conclusions from non-reliable secondary orthird party research. Financial models must be rigorously tested for theassumptions made. Violation: Not updating a research report when newinformation is receivedStudy Session 1, Reading 2
  46. 46. Conduct that Conforms andViolates StandardsStandard 5 Investment Analysis, Recommendations and Actions(B. Communication with Clients and Prospective Clients) Violation: Failure to identify the limits of statistically developedprojections In communication with Clients, facts and opinions must be clearlydistinguished. Violation: Treating estimates as actual numbers Violation: Report fails to describe properly the basic characteristicsof the actual and implied risks of the investment strategy.Study Session 1, Reading 2
  47. 47. Conduct that Conforms andViolates StandardsStandard 5 Investment Analysis, Recommendations and Actions(C. Record Retention) Violation: Failure to keep a document and copies of all theinformation that goes into his reports, including the secondaryor third-party research of other analysts.Study Session 1, Reading 2
  48. 48. Conduct that Conforms andViolates StandardsStandard 6 Conflicts of Interest (A. Disclosure of Conflict) Disclosure does not relieve the investment advisor or analystof their obligation of impartiality. It is an additionalrequirement.Study Session 1, Reading 2
  49. 49. Conduct that Conforms andViolates StandardsStandard 6 Conflicts of Interest (A. Disclosure of Conflict) Cases where Disclosure is required: providing banking services on a company the candidate reports involvement in an IPO for a company the candidate report additional compensation arrangements or bonus schemes thatmay cause the candidate to favour one client above anotherStudy Session 1, Reading 2
  50. 50. Conduct that Conforms andViolates StandardsStandard 6 Conflicts of Interest (B. Priority of Transactions) Individual managers, advisers, or mutual fund employees canmake money from personal investments as long as:1) the client is not disadvantaged by the trade2) the investment professional does not benefit personally fromtrades undertaken for clients3) the investment professional complies with applicableregulatory requirementsStudy Session 1, Reading 2
  51. 51. Conduct that Conforms andViolates StandardsStandard 6 Conflicts of Interest (C. Referral Fees) Non disclosure of any kind of referral fee can be a violation ofthe standard. Even inter departmental referral fees should bedisclosed. A Quid pro quo relationship with another investment orbrokerage firm should be disclosed, even if the relationshipbenefits the client.Study Session 1, Reading 2
  52. 52. Conduct that Conforms andViolates StandardsStandard 7 Responsibilities as a CFA Institute Member and CFACandidate (A. Conduct as Members and Candidates in the CFAProgram) Violation: Breaking exam rules Compromising the exam integrity by divulging details of an exam Misrepresentation of any information to the CFA institute.Study Session 1, Reading 2
  53. 53. Conduct that Conforms andViolates StandardsStandard 7 Responsibilities as a CFA Institute Member and CFACandidate (B. Reference to CFA Institute, the CFA Designation,and the CFA Program) Violation: Exaggerating the meaning or implications ofmembership in CFA Institute. For example passing three examsin consecutive years may be a statement of fact, but it cannotbe used to claim superior abilities as an investment analyst.Study Session 1, Reading 2
  54. 54. Practices Designed to PreventCode ViolationsStandard 1 Professionalism (A. Knowledge of the law): Reporting potential violations of the Code and Standardscommitted by fellow members and candidates. Undertaking the necessary due diligence when transactingcross-border business to understand the multiple applicablelaws and regulations Providing written protocols for reporting suspected violationsand provide information on applicable lawsStudy Session 1, Reading 2
  55. 55. Practices Designed to PreventCode ViolationsStandard 1 Professionalism (B. Independence and Objectivity) When possible, prior to accepting "bonuses" or gifts fromclients, members and candidates should disclose to theiremployers such benefits offered by clients. Establishment of a formal written policy on the independenceand objectivity of research.Study Session 1, Reading 2
  56. 56. Practices Designed to PreventCode ViolationsStandard 1 Professionalism (C. Misrepresentation) Provide guidance for employees who make written or oralpresentations to reduce the likelihood of misrepresentation. Members and candidates should encourage their employers todevelop procedures for verifying information of third-partyfirms.Study Session 1, Reading 2
  57. 57. Practices Designed to PreventCode ViolationsStandard 1 Professionalism (D. Misconduct) Development and/or adoption of a code of ethics Dissemination of a list of potential violations and associateddisciplinary sanctions Checking references of potential employees to ensure thatthey are of good characterStudy Session 1, Reading 2
  58. 58. Practices Designed to PreventCode ViolationsStandard 2 Integrity of Capital Markets(A. Material Non Public Information) Public dissemination of the information that is material If material non public information is disclosed for the first timein an analyst meeting or call, the analyst should encourage thecompany to promptly issue a press release or otherwise makethe information publicly available.Study Session 1, Reading 2
  59. 59. Practices Designed to PreventCode ViolationsStandard 2 Integrity of Capital Markets(A. Material Non Public Information) Procedures concerning interdepartmental communication, thereview of trading activity, and the investigation of possibleviolations should be compiled and formalized.Study Session 1, Reading 2
  60. 60. Practices Designed to PreventCode ViolationsStandard 2 Integrity of Capital Markets(B. Market Manipulation) Any action that is likely to affect price and volume artificially(even with good intentions) must be full disclosedStandard 3 Duties to Clients (A. Loyalty, Prudence and Care) Members should encourage their firms to have well draftedpolicies regarding responsibilities to clients.Study Session 1, Reading 2
  61. 61. Practices Designed to PreventCode ViolationsStandard 3 Duties to Clients (B. Fair Dealing) Information should be disseminated in such a manner that all clientshave a fair opportunity to act. Design an equitable system to prevent selective or discriminatorydisclosure. Limit the amount of time that elapses between the decision to makean investment recommendation and the time the actualrecommendation is disseminated.Study Session 1, Reading 2
  62. 62. Practices Designed to PreventCode ViolationsStandard 3 Duties to Clients (C. Suitability) A member or candidate should put the needs andcircumstances of each client and the clients investmentobjectives into a written investment policy statement. The investors objectives and constraints should be maintainedand reviewed periodically to reflect any changes in the clientscircumstances.Study Session 1, Reading 2
  63. 63. Practices Designed to PreventCode ViolationsStandard 3 Duties to Clients (D. Performance Presentation) Include disclosures that fully explain the performance resultsbeing reported. Maintain the data and records used to calculate theperformance being presented. Present the performance of the weighted composite of similarportfolios rather than using a single representative account.Study Session 1, Reading 2
  64. 64. Practices Designed to PreventCode ViolationsStandard 3 Duties to Clients (E. Preservation of Confidentiality) Avoid disclosing any information received from a client exceptto the authorized fellow employees who are also working forthe client. Uand follow their firms electronic information storageprocedures.Study Session 1, Reading 2
  65. 65. Practices Designed to PreventCode ViolationsStandard 4 Duties to Employers (A. Loyalty) Understand any restrictions placed by the employer onoffering similar services outside the firm. Understand the termination policies of an employer.Study Session 1, Reading 2
  66. 66. Practices Designed to PreventCode ViolationsStandard 4 Duties to Employers(B. Additional Compensation Arrangement) Members and candidates should make an immediate writtenreport to their employer specifying any compensation theypropose to receive for services in addition to thecompensation or benefits received from their employer.Study Session 1, Reading 2
  67. 67. Practices Designed to PreventCode ViolationsStandard 4 Duties to Employers(C. Responsibilities of Supervisors) Understand what constitutes an adequate compliance systemand appropriate compliance procedures should beestablished, documented and communicated. Members and candidates are encouraged to recommend thattheir employers adopt a code of ethics.Study Session 1, Reading 2
  68. 68. Practices Designed to PreventCode ViolationsStandard 5 Investment Analysis, Recommendations and Actions(A. Diligence and Reasonable Basis) Cover all pertinent issues when arriving at a recommendation. Understand the parameters used in the model or quantitativeresearch.Study Session 1, Reading 2
  69. 69. Practices Designed to PreventCode ViolationsStandard 5 Investment Analysis, Recommendations and Actions(A. Diligence and Reasonable Basis) Adopt a standardized set of criteria for evaluating theadequacy of external advisers. Due diligence of a portfolio manager must be applied moredeeply than a review of a single security. It includes a reviewof outside managers and investment funds.Study Session 1, Reading 2
  70. 70. Practices Designed to PreventCode ViolationsStandard 5 Investment Analysis, Recommendations and Actions(B. Communication with Clients and Prospective Clients) Describe to clients the manner in which the member or candidateconducts the investment decision-making process. Outline known limitations of the analysis and conclusions containedin their investment advice. Maintain records to assist in the after-the-fact review of a report.Study Session 1, Reading 2
  71. 71. Practices Designed to PreventCode ViolationsStandard 5 Investment Analysis, Recommendations and Actions(C. Record Retention) Archive research notes and other documents that supporttheir current investment-related communicationsStudy Session 1, Reading 2
  72. 72. Practices Designed to PreventCode ViolationsStandard 6 Conflicts of Interest (A. Disclosure of Conflict) When conflicts cannot be reasonably avoided, clear and completedisclosure of their existence is necessary. Disclose special compensation arrangements with the employer thatmight conflict with client interests, such as bonuses based on short-term performance criteria, commissions, incentive fees,performance fees, and referral fees.Study Session 1, Reading 2
  73. 73. Practices Designed to PreventCode ViolationsStandard 6 Conflicts of Interest (B. Priority of Transactions) Individual firms must decide who within the firm should berequired to comply with the trading restrictions. Supervisors should establish reporting procedures forinvestment personnel, including disclosure of personalholdings/beneficial ownerships, confirmations of trades, andpreclearance procedures.Study Session 1, Reading 2
  74. 74. Practices Designed to PreventCode ViolationsStandard 6 Conflicts of Interest (C. Referral Fees) Inform their employer, clients, and prospective clients of any benefitreceived for referrals of customers and clients. Such disclosuresallow clients or employers to evaluate 1) the partiality shown in anyrecommendation of services and 2) the full cost of the services. Disclose payment of a fee or compensation to others for referralsStudy Session 1, Reading 2
  75. 75. Practices Designed to PreventCode ViolationsStandard 7 Responsibilities as a CFA Institute Member and CFACandidate (A. Conduct as Members and Candidates in the CFAProgram) Do not disclose details relating to the content of the exam. Do not use the membership or CFA designation to further businessinterests.Study Session 1, Reading 2
  76. 76. Practices Designed to PreventCode ViolationsStandard 7 Responsibilities as a CFA Institute Member and CFACandidate (B. Reference to CFA Institute, the CFA Designation,and the CFA Program) CFA institute has well defined rules for using the designationslike charter holder, member or candidate. The rules must bestrictly followed.Study Session 1, Reading 2
  77. 77. Why Were The GIPS Created? GIPS were created to enable a valid comparison of investmentperformance between different funds. The GIPS standards ensure fair representation and fulldisclosure of investment performance.Study Session 1, Reading 3
  78. 78. Who GIPS Apply To? Only investment management firms that actually manageassets can claim voluntary compliance with the Standards. Plan sponsors, software vendors and consultants cannot makea claim of compliance. Compliance can only be claimed on a firm-wide basis.Study Session 1, Reading 3
  79. 79. Who GIPS Serve? The GIPS standards benefit two main groups: investmentmanagement firms and prospective clients. Investors have a greater level of confidence in the integrity ofperformance presentations of a GIPS-compliant firm and canmore easily compare performance presentations fromdifferent investment management firms.Study Session 1, Reading 3
  80. 80. What is a Composite? A composite is an aggregation of portfolios managed accordingto a specific mandate All the portfolios which are managed by a specific mandatehave to be includedStudy Session 1, Reading 3
  81. 81. Portfolios in a Composite The determination of which portfolios to include in thecomposite must be made according to pre-established criteria.Example. A firm cannot subjectively select which Global Equityportfolios will be included in or excluded from the calculationand presentation of the Global Equity Composite.Study Session 1, Reading 3
  82. 82. Responsibility forClaim of Compliance Firms self-regulate their claim of compliance. Firms may voluntarily hire an independent third party toperform verification in order to increase confidence in thefirms claim of compliance. However, independent verificationis not a requirement.Study Session 1, Reading 3
  83. 83. Firm Wide Basis Verification is performed with respect to an entire firm, not onspecific composites. Verification tests whether the investment firm has compliedwith all the composite construction requirements of the GIPSstandards on a firm-wide basis.Study Session 1, Reading 3
  84. 84. Features of GIPS The GIPS standards require firms to include all actual,discretionary, fee-paying portfolios in at least one compositedefined by an investment mandate The accuracy of input data is critical to the accuracy of theperformance presentation. Calculation of performance should be done according to themethodologies prescribed in the GIPSStudy Session 1, Reading 4
  85. 85. Fundamentals of Compliance Firms should ensure that all requirements are met beforeclaiming GIPS compliance Internal compliance checks and third party verification areencouragedStudy Session 1, Reading 4
  86. 86. Definition of an Investment Firm The definition of the firm is the foundation for firm-widecompliance and creates defined boundaries whereby total firmassets can be assessed. Firm definition should be broad andmeaningfulStudy Session 1, Reading 4
  87. 87. Definition of an Investment Firm The scope of this definition should include all geo-graphical(country, regional, etc.) offices operating under the samebrand name regardless of the actual name of the individualinvest-ment management company.Study Session 1, Reading 4
  88. 88. Historical Performance Record Changes in a firms organization must not lead to alteration ofhistorical composite performance. Requirements of thehistorical performance record is to ensure a lack of biasStudy Session 1, Reading 4
  89. 89. Historical Performance Record A firm is required to initially present, at a minimum, five yearsof annual investment performance that is compliant with theGIPS standards. If it has been in existence <5 yrs, the firm mustpresent performance since the firms inception or thecomposite inception date.Study Session 1, Reading 4
  90. 90. Historical Performance Record The firm must present an additional year of performance eachyear, building up to a minimum of 10 years of GIPS-compliantperformance.Study Session 1, Reading 4
  91. 91. Conflict Between GIPS andOther Regulations If conflict does not exist, follow both GIPS and local laws Compliance with applicable law and/or regulation does notnecessarily lead to compliance with the GIPS standards. If conflict exists, follow local laws and disclose the source ofconflictStudy Session 1, Reading 4
  92. 92. 9 Major Sections of GIPS Standards Fundamentals of Compliance Input Data Calculation Methodology Composite Construction Disclosure Presentation and Reporting Real Estate Private Equity Wrap Fee/Separately Managed Account (SMA) PortfoliosStudy Session 1, Reading 4
  93. 93. Requirements andRecommendations The provisions for each section are categorized intorequirements and recommendations. Firms must meet all the requirements to claim compliancewith the GIPS standards. Firms are encouraged to implementas many of the recommendations as possible.Study Session 1, Reading 4

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